The Institute and Faculty of Actuaries (IFoA) supports the proposed overall structure for UK actuarial regulation set out in the UK Government’s White Paper, but has significant concerns about how this will work in practice.
This conclusion is set out in the IFoA’s submission to the UK Government’s consultation on ‘Restoring Trust in Audit and Corporate Governance’. The Government proposes that a new UK regulator, the Audit, Reporting and Governance Authority (ARGA) – which will replace the Financial Reporting Council (FRC) – will take on responsibilities for actuarial regulation and oversight of the IFoA.
The IFoA’s main concerns relate to an absence of detail as to how the proposals will work in practice, and the public interest risks that might arise depending on how they are implemented.
In particular, there is a critical need for clarity regarding the scope of ARGA’s actuarial technical standards role, including who and what ARGA will regulate and how it will identify which individuals (or entities) are within its remit. It is also critical that everyone doing regulated work within ARGA’s scope is subject to the same regulation, not just IFoA members. There is otherwise a real risk of inconsistency and regulatory arbitrage, with potentially only some of those doing particular public interest activities subject to regulation.
The IFoA also expresses concern about the proportionality and practicality of introducing actuarial entity regulation, and the related risk that this will duplicate existing sectoral regulation by a number of other regulators.
Finally, the IFoA’s response questions the cost effectiveness of maintaining two very similar disciplinary schemes to deal with a relatively small volume of actuarial cases.
Andrew Rear, Chair of the IFoA Regulation Steering Group, said:
“We want to work with ARGA to provide a regulatory framework that is clear, effective and risk-based in serving the public interest and upholds the standards and reputation of the actuarial profession.
“We support independent oversight but ARGA needs to provide sufficient and dedicated actuarial expertise and resource to ensure that regulation of the profession is robust and credible. It is essential that actuarial regulation is not just bolted on to that of the audit and accountancy professions.”
The IFoA submission puts forward a number of practical suggestions as to how the proposals could work in practice:
- ARGA to provide clearly defined oversight of the IFoA’s UK regulation of actuaries
- ARGA’s technical standards role to apply to a defined list of public interest work and activities, with anyone carrying out that work subject to the same standards (not just IFoA members)
- Introduction of an authorisation/registration system for key actuarial roles, with anybody in one of those roles (not just IFoA members) required to be appropriately qualified and regulated/authorised.
- ARGA’s monitoring role to focus on this list of authorised role holders.
- ARGA to have specific powers directed at entities employing role holders to ensure cooperation and provision of information, but stopping short of a new system of entity regulation.
- Single disciplinary scheme to be operated by the IFoA with enhanced ARGA independent oversight.
- More formal arrangements for cooperation between all UK regulators involved with actuarial work
Louise Pryor, IFoA President, said:
“ARGA will have new statutory powers to set, monitor and enforce legally binding technical actuarial standards. However, it is unclear to whom those statutory powers will apply or to which areas of actuarial activity. It is crucial that the new UK regulatory system is set up from the start to succeed, in a practical and proportionate way, protecting the public interest but avoiding unnecessary cost.
“We want to avoid a situation in which regulation is ineffective or fails because it is either too broad or too ill-defined to enforce, or creates a situation where actuaries are regulated to do work while non-actuaries doing the same work do not have to be regulated. There is also the risk of overlap with other UK regulators, especially in the insurance sector, so the new regime must be clear and focussed.”